Yahoo's new CEO Mayer takes on the mobile challenge

A Yahoo! billboard is seen in New York's Time's Square January 25, 2010. REUTERS/Brendan McDermid

SAN FRANCISCO (Reuters) - Yahoo Chief Executive Marrisa Mayer promised to modernize Yahoo’s websites and make them more smartphone-friendly in her debut appearance at the helm of the struggling company, faulting it for underinvesting in the “mobile wave”.

Mayer, once a rising star at Google Inc who took charge at Yahoo in July, told analysts on a conference call that she wanted to focus Yahoo’s efforts around the “daily habits” of users such as email, the home page, Internet search and mobile devices.

“We’re committed to going back to our roots as a consumer internet company focused on user experience,” the 37-year-old Mayer said on Monday, adding that “we intend to win”.

Rather than get into completely different businesses, Mayer said Yahoo would look to improve its performance and finding opportunities in its existing businesses, such as search which she said has “clear upside” potential.

But her top priority was to fashion a coherent strategy to manage the industry’s transition to mobile devices, a fundamental shift that some of the most innovative Silicon Valley companies - from Facebook Inc to Google Inc - are struggling with.

“The mobile wave is a huge wave for us to ride,” Mayer said on the conference call, adding that that the company had failed to capitalize on the shift to smartphones, underinvesting and “splintering” Yahoo’s brands in its previous mobile efforts.

Mayer’s comments, which she delivered along with third-quarter earnings results that beat analyst expectations, sent Yahoo shares up 4.6 percent to $16.49 in after hours trading on Monday.

“For people who weren’t sure how she was going to come across on her first call, she definitely proved herself tonight,” said RBC analyst Andre Sequin. “It seems like she really recognizes what the company is, where the strengths are and what the opportunities are.”

Some analysts also pointed to comments about using share buybacks to distribute the gains from the sale of Yahoo shares in China’s Alibaba Group, and a preference for smaller-sized acquisitions rather than blockbuster deals, as buoying investor sentiment.

Mayer, Yahoo’s third CEO in about a year, arrived after a tumultuous period in the company in which former CEO Scott Thompson resigned after less than 6 months on the job over a controversy about his academic credentials. Yahoo co-founder Jerry Yang had also stepped down as CEO, and an internal reorganization eliminated thousands of jobs.

Internet pioneer Yahoo, which makes most of its money from online advertising, has fallen behind more innovative rivals n recent years and missed out on the online social networking boom launched by Facebook.

Roughly 700 million users still visit a Yahoo website every month - putting it in the top ranks globally. But the amount of activity people engage in on many sites is steadily declining and its smartphone offerings are deemed lackluster.

“You have the tone of a professional CEO who just wants to block and tackle better and move the company forward,” he said, noting that he detected echoes of Google’s business approach in Mayer’s comments.

SHIFTING COURSE

Mayer is expected to focus on revamping Yahoo’s technology and products, shifting course from the media-centric approach embraced by her immediate predecessor, Ross Levinsohn.

Still, Mayer noted that she did not plan to exit media entirely, noting that content was part of the company’s appeal and that Yahoo would continue to invest in some original programming such as videos and coverage of events such as the Olympic games and the U.S. presidential elections.

Since taking the helm, Mayer has moved quickly to build a team to assist her, shelling out rich pay packages for a new chief operating officer and chief financial officer, among others.

Mayer and Finance Chief Ken Goldman said the company was open to acquisitions to help bolster its technology and its engineering ranks. But Mayer noted that Yahoo would primarily focus on “smaller-scale” deals, noting that the vast majority of tech industry acquisitions are for less than $100 million.

Mayer also talked about working more closely with software provider and Web search partner Microsoft Corp, while employing technology to shore up Yahoo’s display ads business through such features as automated buying.

A 10-year search partnership deal that Yahoo struck with Microsoft in 2009 has so far been a disappointment, with Yahoo’s search advertising rates below expectations and Yahoo’s market share eroding.

Excluding a $2.8 billion gain related to the sale of Alibaba Group shares, Yahoo said it earned $177 million in income from operations and reported adjusted net earnings of 35 cents per share in the third quarter. Analysts polled by Thomson Reuters I/B/E/S were looking for adjusted EPS of 25 cents.

Mayer said that the company was likely to begin withdrawing from international businesses that failed to grow, but said a recent decision to pull out of South Korea, a market full of local rivals, was an “unusual exception.”

Yahoo ended the quarter with 12,000 employees, down more than 12 percent from 13,700 a year earlier.

Net revenue, which excludes fees paid to partner websites, was $1.09 billion compared with $1.07 billion in the year ago period.

“The fact that the quarterly results didn’t show any massive deterioration was a decent sign, and gives her probably more time,” said Macquarie Research analyst Ben Schachter, adding that Mayer’s vision was not radically different for the company.

“It’s about can Marissa and team execute and that’s what it’s been about for the past few management teams,” he said.